Trade Secrets – New England IP Bloghttps://www.newenglandipblog.com
Covering intellectual property developments in New England, and other developments that impact New England companies.Tue, 14 Aug 2018 18:15:03 +0000en-US
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1 https://wordpress.org/?v=5.3.3&lxb_maple_bar_source=lxb_maple_bar_sourceMassachusetts Passes Non-Compete Reform Lawhttps://www.newenglandipblog.com/2018/08/massachusetts-passes-non-compete-reform-law/
Tue, 14 Aug 2018 18:13:17 +0000https://www.newenglandipblog.com/?p=3570Continue Reading]]>On August 10, 2018, Massachusetts Governor Charlie Baker signed into law a bill making significant reforms to Massachusetts’ law regarding non-compete agreements, as well as adopting the Uniform Trade Secrets Act (“UTSA”) (joining 48 other states as well as DC in adopting the UTSA at least in part, and leaving New York as the lone state to not have adopted any version of the UTSA). The reform comes at the tail end of the 2018 legislative session and after several years of failed attempts at passing non-compete reform. Although Massachusetts lawyers should read the legislation in full and consult with counsel to prepare for the laws to take effect on October 1, 2018, the following post provides a summary of notable provisions in the non-compete legislation.

Coverage and Scope

The new non-compete law applies to traditional non-compete agreements, but does not apply to other varieties of restrictive covenants, such as non-disclosure agreements, non-solicitation agreements, certain agreements applying to the sale of a business, and invention assignment agreements. Moreover, and particularly notably, the new lawdoes not apply to “non-compete agreements entered in connection with an employee’s separation, provided the employee has 7 days to rescind acceptance.”

The law will cover non-compete agreements entered into with Massachusetts residents and Massachusetts employees on or after October 1, 2018 (but not retroactively), including independent contractors. Employers cannot evade application of the law to its employees or independent contractors by use of choice of law provisions that would require application of a different state’s law. This is particularly important for employers who may have a principal place of business outside of Massachusetts and may wish to apply laws of that jurisdiction to its non-compete agreements, or for employers who may employ individuals who are Massachusetts residents but work in another state.

Enforceability of Non-Compete Agreements

The law prohibits employers from entering non-compete agreements with the following categories of individuals: employees classified as non-exempt/overtime eligible under the Fair Labor Standards Act; employees who are under the age of 18; undergraduate or graduate students working as interns or in other short-term employment; and, notably, employees who are or terminated “without cause” or laid off. Because the term “without cause” is not defined, it seems likely that any contracts containing non-compete provisions will now include a definition of termination “for cause.”

While employers may continue to enter into non-compete agreements with individuals who do not fall within the above-described categories, the new law establishes several minimum requirements in order for those agreements to be considered valid and enforceable. In terms of contents and procedure, the non-compete agreement:

Must be in writing;

Must be signed by the employee and employer;

Must include provisions which expressly state that the employee has a right to counsel prior to signing;

Must be provided to the employee at least ten days prior to the date of hire (or at least ten days prior to the effective date of the agreement, if entered into after the date of hire);

Must not exceed 12 months in duration, unless the employee has breached a fiduciary duty or has unlawfully taken the employer’s physical or electronic property, which could extend the duration to a maximum of 24 months;

Must include a “garden leave” provision, which would require the employer to pay the employee at least 50% of the employee’s highest annualized base salary in the past two years, or “other mutually agreed upon consideration” (which is not defined the law); and

If signed after employment has commenced, the employer must provide “fair and reasonable consideration,” which must be more than an offer of continued employment alone.

The law also affirms and attempts to clarify additional prerequisites that are currently established in common law principles, including requirements that the non-compete be reasonable in scope. For instance, where a non-compete contains a geographic reach “that is limited to only the geographic areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence,” it is to be treated as presumptively reasonable. Moreover, the scope of prohibited activities must also be reasonable, and should be assessed based on the employee’s services over the prior 24 months. Finally, the non-compete must be no broader than necessary to protect the legitimate business interest of the employer, and must be consonant with public policy.

To enforce a non-compete, the action must be initiated in the county of the employee’s residency, or in Suffolk County state court if mutually agreed upon by the parties. If a court determines that a non-compete covenant part of a larger agreement is unenforceable, such a determination will not void the other provisions of the agreement. In addition, the law permits courts to “reform or otherwise revise” invalid non-compete agreements in order to make the offending provision(s) enforceable. Courts are also granted the ability to impose non-compete restrictions as a remedy for a breach of contract, or statutory or common law duties.

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With less than two months until the law goes into effect, employers should promptly consult with counsel to discuss the impact of the new legislation and to prepare compliant language and forms for future non-compete agreements.

]]>President Obama Signs Federal Trade Secrets Act Into Lawhttps://www.newenglandipblog.com/2016/05/president-obama-signs-federal-trade-secrets-act-into-law/
Thu, 12 May 2016 19:57:58 +0000http://www.newenglandipblog.com/?p=2830Continue Reading]]>Yesterday, President Obama signed the Defend Trade Secrets Act into law. The law creates a federal cause of action for protection of trade secrets. More information about the new law can be found in Proskauer’s client alert here.

]]>Relating a Software Copyright Infringement Claim Back to its Sourcehttps://www.newenglandipblog.com/2016/01/relating-a-software-copyright-infringement-claim-back-to-its-source/
Fri, 29 Jan 2016 20:00:14 +0000http://www.newenglandipblog.com/?p=2665Continue Reading]]>In a recent order, Judge Douglas P. Woodlock of the District of Massachusetts untangled a complicated timeline to decide motions for summary judgment regarding several copyright infringement and related claims on a statute of limitations basis. The analysis is instructive to prospective plaintiffs as to when a complaint should be filed, which potential defendants it should include, and what level of knowledge provides proper notice of a claim.

While a copyright case at its core, the litigation snowballed over the course of three years and two amended complaints to include ten causes of action and multiple defendants. In 2007, while employed as a software developer at plaintiff Iconics, defendant Simone Massaro began developing video surveillance system software for Volpe Industries, a company founded by defendant Chris Volpe. Upon his resignation from Iconics, Massaro allegedly copied Iconics’ software source code and brought it with him to Volpe Industries.

The original complaint was filed on August 30, 2011, alleging only one count of copyright infringement against only Massaro. A first amended complaint was filed on May 20, 2013, adding new causes of action and defendant BaxEnergy GmbH; a second amended complaint was filed on April 10, 2014, adding further causes of action and other defendants including Volpe. A preceding state court complaint was filed against Volpe Industries on January 27, 2009, resulting in a declaratory judgment that Iconics owned all of Massaro’s interests in the Volpe Industries project. In 2010, Volpe Industries filed for bankruptcy in the District of Massachusetts.

Judge Woodlock first determined that the three year statute of limitations for the original copyright claim began on either August 30, 2008, the date on which Iconics received an anonymous email informing it of Massaro’s use of the source code, or September 15, 2008, the date on which Iconics’ counsel asserted actual knowledge in a letter to Volpe Industries. Using either date, the original complaint fell within the statute of limitations, but both amended complaints fell outside of the three year period. For the copyright infringement claims to be timely and survive summary judgment, they would have to relate back to the original complaint. (A claim relates back to the date of an original pleading when it arises out of the same conduct, transaction, or occurrence set out in the original pleading and the defendant was given adequate notice of that conduct, transaction, or occurrence.)

When applied to defendant Massaro, the analysis was straightforward because the original complaint alleged the copyright infringement by Massaro. The same infringing actions by Massaro – the copying of Iconics’ source code – provided the basis for all copyright claims asserted in the amended complaints, thus allowing those claims against Massaro to relate back.

When applied to defendant Chris Volpe, the analysis became more complicated because Volpe was not named in the original complaint. The first portion of the analysis was clear: the original complaint identified Massaro’s alleged copyright infringement as being undertaken for Volpe, thus the same occurrence formed the basis of the later claims against Volpe for the same reasons as for Massaro. However, with respect to notice, Judge Woodlock found that Iconics failed to show that Volpe had the proper notice of the original complaint necessary for the later claims against him to relate back.

Iconics’ evidence that Volpe had general knowledge of the original complaint against Massaro without more specific details of that lawsuit did not rise to level of knowledge that could give Volpe proper notice. As a result, the claims against Volpe could not relate back to the original complaint and they were found time-barred for falling outside of the statute of limitations.

For other relevant claims arising out of the same actions, including theft of trade secrets and removal and alteration of copyright management information – both also having three year statutes of limitations, the same result was found, relating the claims back as to Massaro but not as to Volpe. A distinction was made regarding two allegations of copyright infringement that arose out of different, later activity involving the use of Iconics’ source code on a project for BaxEnergy. While these claims were first raised in the first amended complaint of May 20, 2013, Iconics first could have learned of the activity on September 27, 2010 and thus, fell within the three year statute of limitations window.

This decision serves as a reminder to prospective plaintiffs that causes of action should be timely filed and careful consideration should be given to who the necessary defendants are and that proper notice is provided to them. Failure to meet these requirements within the statute of limitations can result in lost claims – not just in the copyright infringement context, but in all causes of action where a statute of limitations applies.

The case is Iconics, Inc. v. Massaro, Civil Action No. 11-11526-DPW (D. Mass. Jan. 15, 2016), before Hon. Douglas P. Woodlock. A copy of the order can be found here.